Affordable Care Act Final Regulations Part IV: Non-Calendar Year Plans
Posted on May 09, 2014
On February 12, 2014, the Internal Revenue Service issued final regulations with respect to the Affordable Care Act (ACA). Part I of this series of articles provides an overview of the Final Regulations. Part II addresses transitional relief from the “play or pay” penalties. Part III deals with the monthly measurement method to identify the full-time employees to whom minimum value coverage must be offered in order to avoid penalty. This Part IV deals with the transition relief afforded to non-calendar year plans.
Pre-2015 Transition Guidance
The final regulations provide transition relief for the period prior to the first day of the 2015 plan year if: the employer maintained the non-calendar year plan on December 27, 2012; the plan was not modified after that date to begin at a later calendar date; all employees who were eligible under the terms of the plan on February 9, 2014 and who continue in the employ of the employer are eligible as of the first day of the 2015 plan year for coverage; and the coverage offered as of the first day of the 2015 plan year is affordable coverage that provides minimum value.
Example
Employer has 200 full-time (within the meaning of the ACA) employees and as of December 27, 2012 maintained a plan with an April 1 – March 31 plan year. The plan year was not modified after December 27, 2012. All of the employees were eligible for coverage under the plan’s eligibility rules as in effect on February 9, 2014. The coverage available on February 9, 2014 was not affordable and may not have offered minimum value. However, as of April 1, 2015 all of the employees are offered affordable coverage that provides minimum value. In this case, no penalty (Section 4980H) will be assessed against the employer for the period prior to April 1, 2015. However, if the employer employed an additional 100 full-time employees who were not eligible (33.3% exclusion), then the employer would be subject to Section 4980H penalties because the employer is not offering coverage to all but 5% (or for 2015, 30%) of its full-time employees (and their dependents).
Significant Percentage Transition Guidance (All Employees)
Additional transition guidance is available for employers that maintained a non-calendar year plan as of December 27, 2012 if the plan year was not modified after that date to a later calendar date and that either: (1) had, as of any date in the 12 months ending on February 9, 2014, at least 25% of all employees covered under the non-calendar year plan; or (2) offered coverage under the plan to at least one-third (1/3) of all employees during the open enrollment period that ended most recently before February 9, 2014. If either of these tests is met, no penalty will be imposed for any month prior to the first day of the 2015 plan year with respect to employees who (1) are offered affordable coverage that provides minimum value no later than the first day of the 2015 plan year, and (2) were not otherwise eligible to participate in any other group health plan maintained by the employer as of February 9, 2014.
Example
Employer has 200 full-time and 50 part-time (within the meaning of the ACA) employees and as of December 27, 2012 maintained a plan with a July 1 – June 30 plan year. Employer chooses December 1, 2013 as the date within 12 months of February 9, 2014 to measure the number of covered employees. Only 40 of the 250 (16%) employees were covered. During the open enrollment period that ended most recently before February 9, 2014, the employer offered coverage under the plan to 125 of the 250 (50%). As of the first day of the 2015 plan year employer offers affordable coverage that provides minimum value to all full-time employees. No penalty will be due with respect to the full-time employees for the months prior to the first day of the 2015 plan year because although the employer provided coverage to less than 25% of all employees, it offered coverage to more than one-third of all employees.
Significant Percentage Transition Guidance (Full Time Employees)
Commentators identified problems for employers with many part-time or seasonal workers in the application of the rule above. In response, the final regulations provide relief for employers that, as of December 27, 2012, maintained a non-calendar year plan, have not modified the plan to a later calendar year date and either: (1) had, as of any date in the 12 months ending on February 9, 2014, at least one third (1/3) of its full-time (within the meaning of the ACA) employees covered under the non-calendar year plan; or (2) offered coverage under the plan to at least one-half (1/2) of its full-time employees during the open enrollment period that ended most recently before February 9, 2014. If either of these tests is met, no penalty will be imposed for any month prior to the first day of the 2015 plan year with respect to employees who (1) are offered affordable coverage that provides minimum value no later than the first day of the 2015 plan year, and (2) were not otherwise eligible to participate in any other group health plan maintained by the employer as of February 9, 2014.
Example
Employer has 50 full-time and 150 not full-time (within the meaning of the ACA) employees and as of December 27, 2012 maintained a plan with a July 1 – June 30 plan year. Employer chooses December 1, 2013 as the date within 12 months of February 9, 2014 to measure the number of covered full-time employees. Only 10 of the 50 (20%) full-time employees were covered. During the open enrollment period that ended most recently before February 9, 2014, the employer offered coverage under the plan to 30 of the 50 (60%). As of the first day of the 2015 plan year employer offers affordable coverage that provides minimum value to all full-time employees. No penalty will be due with respect to the full-time employees for the months prior to the first day of the 2015 plan year because although the employer provided coverage to less than 1/3 of its full-time employees, it offered coverage to more than ½ of the full-time employees.
No Change to Plan Year
The transition relief for applicable large employers sponsoring non-calendar year plans is available for the non-calendar year plan only if the plan year was not modified after December 27, 2012, to begin at a later calendar date. Many calendar year plans were modified in 2013 to take advantage of lower premium increases before the impact of the ACA on the group rates was fully underwritten into the 2014 rates. These plans will not be eligible for the non-calendar plan year transition relief described herein and must comply as of January 1, 2015. Other relief described in Parts I – III of this series of articles will still be available to those plans, if they otherwise qualify for that relief.
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